Czech Pet Food Distributor Fined $1.7 Million Over Retail Price Controls

Key Takeaways

• Nearly a Decade of Price Controls: Plaček Pet Products set minimum retail prices for dog and cat food and pet supplies from January 2013 through March 2022.
• $1.7 Million Fine: The Czech Office for the Protection of Competition fined the company about $1.7 million (CZK 36.438 million) for the conduct.
• Retailers Faced Pressure to Comply: Plaček made business cooperation contingent on compliance with the pricing agreements and urged customers to raise prices to specified levels, including through the threat and use of penalties.
• Remediation Reduced the Penalty: The Office considered Plaček's cooperation, termination of the conduct, corrective measures and implementation of a compliance program when determining the fine.

Deep Dive

For nearly a decade, retailers buying pet food and supplies from Plaček Pet Products were not entirely free to decide what those products would cost when they reached the shelf. The Czech Office for the Protection of Competition said the distributor set minimum retail prices for dog and cat food and other pet supplies from Jan. 17, 2013, through March 3, 2022, requiring its customers to follow them. The conduct has now resulted in a fine of about $1.7 million (CZK 36.438 million).

The arrangement was not merely a matter of recommended prices. According to the Office, Plaček made continued business cooperation contingent on customers observing the agreements, pressed them to raise prices to specified levels and, in cases where the minimum prices were not followed, imposed penalties.

That left retailers with less room to compete on one of the few terms a customer can see immediately—price. The Office characterized the conduct as a vertical cartel and said it distorted competition in both the Czech Republic and the broader European Union market.

"Vertical agreements setting minimum resale prices have a negative impact on competition by their very nature, as they prevent competition based on the price of goods, which is typically the most important and decisive factor for customers," Kamil Nejezchleb, vice-chair of the Office, said.

What followed the Office's intervention, however, mattered considerably when the penalty was calculated. Plaček voluntarily ended the conduct immediately after the authority's on-site inspections and took corrective measures. It told customers that the final price charged to consumers was theirs to determine, cooperated fully with the investigation and helped the Office establish the competition law violation.

The company also introduced a compliance program. The Office concluded that the program was sufficiently effective when considered against the way competition operates in the affected markets, the nature of the products involved, Plaček's business model and the company's size.

Those steps did not undo the conduct that preceded them. They did change its regulatory aftermath. Plaček cooperated with the Office through the settlement procedure, and the authority said the penalty was significantly reduced as a result.

There is a useful compliance lesson in that distinction. Remediation after an investigation begins cannot make the underlying violation disappear, but regulators can still give meaningful weight to what a company does once a problem has been exposed. Here, the Office specifically considered Plaček's decision to stop the conduct, cooperate with investigators, clarify its customers' pricing independence and establish an effective compliance program when determining the sanction.

Plaček did not appeal the fine, and the decision is now final. The company is a leading distributor of premium pet food and pet supplies in the Czech market and also operates in retail. Its distribution business includes brands such as Brit, Carnilove, Ontario and Eukanuba, along with pet supplies from Beaphar and Repti Planet.

The price restrictions lasted a little more than nine years. The response came much later, but when the Office finally put a number on the violation, it also demonstrated that what a company does after misconduct is uncovered can materially affect what follows.

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